Reduce the hassle and stress of closing out your business accounting and be ready for your tax appointment. Plus, be ready to focus on your business. Whether you use Quickbooks or other accounting system and/or have an accountant do your books, the following list can help ease the process of year-end close.
Reconcile all bank and credit card accounts. I know that sounds like a lot of work, but you should have been doing this through the year but in case you did not. Reconciling your accounts is a key step to having accurate accounting records.
Make year-end accrual adjustments and corrections
If your business accrues payroll and liabilities, or prepays any expenses (such as insurance, subscriptions) then carries the prepayment as an asset, you may need to make journal entries to ensure that these accruals and prepayments are handled at year-end.
Close your Books
You can choose whether to close your books at the end of the year or not. However, the advantages to closing your books in Quickbooks is that you will have restricted access to data from the prior accounting period, which means that transactions cannot be changed without your knowledge. To modify or delete a transaction in a closed period, a user must know the closing date password and have the appropriate permissions. The disadvantages to closing your books in Quickbooks is that you will always have easy access to last year’s data, including the details of every transaction. Plus, you can create reports to compare between this year and last year.
Adjust Retained Earnings
Retained earnings are profits from earlier accounting periods that have not been distributed to the company’s owners. At the end of your year, QuickBooks computes your profit (or loss) into an equity account named Retained Earnings. It is common to adjust the Retained Earnings account to track funds withdrawn by, or distributed to, company owners,
Review details of all new equipment purchased during year
Typically, you expense the purchase price of a fixed asset over its useful life, not just the year in which you made the purchase. This type of business expense is known as depreciation. Work with your accountant to determine how to calculate depreciation for fixed assets such as furniture, computers, vehicles, and buildings. Because of their long-term value, fixed assets are treated differently than other business expenses.
Take Physical Inventory
If your business maintains inventory, reconcile your actual inventory against the inventory recorded in your accounting software system. If using QuickBooks you can create a physical inventory sheet, take an inventory, and then compare those totals against the information recorded.
Print Financial Reports
The following 4 reports are the backbone to your business.
Trial Balance – this report shows the balance of each account in debit and credit format.
Profit & Loss Report – Also known as an income statement, summarizes your income and expenses for the year.
Balance Sheet – this report provides a financial snapshot of your business. The report will show how much your business is worth (equity) by subtracting all the money it owes (liabilities) from everything it owns (assets). The total for equity includes your company’s net income for the year.
Income Tax Summary Report – this is a standard report in Quickbooks that helps you gather data for your federal income tax forms. The report will also show amounts Quickbooks tracked for each tax line on the tax forms.
Print and mail Forms W-2, 1099, 940, 941
Before you print and mail forms to your employees or vendors make sure to check the following:
- Have employees review their address and Social Security number to confirm they are current and correct.
- Also ask employees to confirm that their name appears on their paychecks exactly as it appears on their Social Security card.
- Check all federal and state employer identification numbers to be sure your W-2s and tax reports are being reported to the correct employer number.
- Be sure that when you are verifying that the EIN and SEIN are correct, you also verify that the company’s address is correct.
Archive and back up your data
You should archive or back up your data as part of the process of preparing for year-end. Cleaning up your data is an optional step when closing your books at the end of the year.